How ETH+ is created

ETH+ is a unique, interest-bearing "RToken" that was permissionlessly created on the Reserve protocol. The collateral backing ETH+ consists of a balanced, 50/50 split of Lido’s wstETH and RocketPool’s rETH, two popular, yield-generating Ethereum liquid staking tokens. RTokens, which include ETH+, are assets backed by a basket of ERC-20 tokens, often those that generate yield. Anyone can mint ETH+ by depositing the specified proportion of wstETH and rETH or redeem ETH+ for a proportional share of both liquid staking assets. Each RToken, including ETH+, operates under independent governance. This means that decisions regarding the management and operation of ETH+ are made by its community of token holders. An important security measure integrated into the Reserve Protocol is the ability to safeguard against collateral default through Reserve Rights ($RSR) staking. When users stake their RSR tokens, they provide what's known as "first loss capital," functioning as an additional insurance layer or overcollateralization mechanism for the system. In return, they get to participate in governance decisions and earn a share of the yield generated from ETH+ (currently set to 5% of the staking yield). Unstaking staked RSR is subject to a 2-week delay to prevent users from frontrunning an impending default. During this period, stakers do not earn any rewards.

How is the price of ETH+ kept stable?

ETH+ is designed to maintain a stable value relative to its collateral basket, which is comprised of a 50/50 split of wstETH and rETH. The stabilization mechanisms in place involve arbitrage activities facilitated by governance-imposed issuance and redemption throttles. For instance, if ETH+ were trading below its expected value, arbitrageurs would buy the discounted ETH+, redeem it for the underlying wstETH and rETH, and thus reduce the supply of ETH+ until its price returns to the target value. Conversely, if ETH+ were trading above its pegged value, arbitrageurs would acquire the collateral tokens (wstETH and rETH), use them to mint new ETH+, and sell these on the market until the price reverts to the peg. The issuance and redemption throttles place a cap on the amount of ETH+ that can be issued and redeemed per hour. These arbitrage mechanisms, coupled with issuance and redemption throttles, ensure the stable value of ETH+ and minimize value extraction risk in case of exploits.

How ETH+ is governed

ETH+ is governed by its community of ETH+RSR holders. Its governance structure, similar to other RTokens, is built on a modified version of OpenZeppelin's Governor called Governor Alexios, which allows RSR holders to propose, vote on, and execute proposals. This allows each RToken, such as ETH+, to operate independently, ensuring governance choices are unique to its needs and objectives. Governance parameters for ETH+ are codified at the time of RToken deployment.